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Chen Feller, 17.4.19

The 10 plagues of the Israeli tech industry

Passover is here, so we decided to dig further into the ecosystem and tell you about the 10 plagues of Israeli tech industry.

It’s been quite a while since our exodus from Egypt, since our people went from slavery to freedom and since we settled in Israel and established the Startup Nation. These days are long gone, but today, we have some other modern problems to deal with, problems that prevent Israelis from escaping “modern slavery” (working for an emerging startup) to the desired exodus (exit). So, in the spirit of Passover, here are the 10 plagues of the Israeli tech industry:

Lack of workforceIsrael is a small country, with 8.7 million citizens on the one hand, and over 6,000 startups, tech companies, multinationals and R&Ds on the other hand. This ratio, along with other reasons, makes for a massive lack of experienced and talented employees in the tech sector and about 10,000-15,000 unoccupied jobs, making it nearly impossible for Israel to truly develop (double meaning) and stay on top of global innovation.

No diversityWhile the lack of diversity is another reason for the lack of workforce, it still deserves its own spot in the list of plagues in the Israeli tech industry. 75% of the employees in tech-oriented roles are Jewish non-Orthodox men. There’s a massive shortage of Arabs, Ultra-Orthodox, and women that could fill up that void and solve two problems at once: First, the aforementioned plague, and second, give an equal opportunity to everyone and improve the lives of many families who’ll benefit from the success of the Startup Nation.One more issue worth considering is the employment of men or women over 45. People in these ages are being fired, or having problems finding a job, even with the right set of skills and years of experience. Ironically, most people over 45 are finally done taking care of their small children and have plenty of time to work without worry, unlike the younger employees with much juggling ahead.

"Stealing" employees This plague is entirely dedicated to Amazon that caused some major problems in our “tiny” ecosystem after making Aliyah. Amazon was truly impressed by the talented workforce in Israel, the genius programmers, AI experts, and whatever, but they ran into one major problem: these employees were already working for other startups.Lucky for a big company like Amazon, they had the power and money to scout for these employees and seduce them with VERY HIGH salaries (some were offered $15k a month) and big signing bonuses.Now, while you can be happy for the lucky and talented employees who just bought a new car or got closer to buying a house, it’s a sad situation for small startups and tech companies, who can’t compete with such offers and lose their superstars. While this isn’t a widespread phenomenon, it’s one of the barriers for growing companies.

No growth, only exitsIt’s a little weird to count it as a plague, but “The Exit Culture”, the dream of every Israeli entrepreneur to sell his/her company for personal profit, is somewhat hurting the Israeli tech ecosystem. We have over 6,000 companies, and yet, only two of them are considered large international companies: Teva and Checkpoint, and maybe NICE and Amdocs, but that’s about it. Israeli entrepreneurs prefer selling their companies to foreign or local buyers rather than investing in growing companies locally and spending more effort and money on R&D. Most of the startups sold are no longer in Israeli possession. However, “The Exit Culture” and the dream of becoming rich is what leads to the entrepreneurial spirit of this country, and encourages opening new companies.

Israel is a tiny marketWell, here’s a plague that we can do nothing about: only 8.7 million citizens live in Israel, making it a tiny market for emerging startups. Almost every new company founded in Israel, after quick market research, aims at the US (mostly) or European market. After all, they have a market of 350 million. It’s not necessarily a bad thing, but these companies automatically open new HQ abroad and hire fewer Israelis. The Israeli market loses its chance to experience new technologies, even if they were invented in Israel or by Israelis. Take for example Puls, the “Uber for Technicians” or home design platform Houzz, both unavailable here. Most of these companies start abroad, wait for success, and only then arrive in Israel, with or without Hebrew support (we’re talking to you, Wix).Besides that, only 10% of the investments in Israeli startups are made by local VCs, the rest are foreign investments. The money doesn’t stay in Israel.

Government regulations, laws and restrictions Another reason that gets Israeli startups to flock out of Israel or explore foreign markets are the difficulties the Israeli government regulations drop on new companies, both growing Israeli companies, and multinational services trying to open businesses here in Israel. A good example may be the government’s attempt and success to block Uber from starting a ride-sharing service, or the Israeli startup Via that ran into the same restrictions but managed to find a way into Israel using an existing public transportation operator earlier this week (but with the same problem of public transportation in Israel - they can’t operate on Shabbat). The insurance startup Lemonade works great abroad but can’t operate in Israel because its automatic risk assessment is based on many factors that are barely accessible in Israel. MyHeritage can’t supply DNA test kits for some reasons (don’t ask) and countless more examples. We even had our own struggle with Israeli regulations; we had to order a product for a new technology we are working on. The Israeli Ministry of Communications took the product to customs to check its connectivity, and it took us months to get it released and approved.

No tech in the peripheryIsrael is a fertile ground for startups and entrepreneurship, but only if you live in the center of the country: 77% of the startups are located at the center (Tel Aviv and the surrounding area), 12% up north, 8% in Jerusalem and 3% in the south.This is a major issue, making families leave their homes in the distant areas of the country and “immigrate” to Israel’s super-crowded center to look for job opportunities. The companies, on the other hand, are afraid of opening new offices in these areas, because it would be harder for them to find employees. It’s a never-ending cycle. Even the IDF promised to move its technological units to the Be’er Sheva area a few years ago, but it still hasn’t happened. Meanwhile, many companies opened offices in Be’er Sheva with the false promise of making the city “The Cyber Capital of Israel”. They’re still waiting. There are some solutions: Intel is opening many factories in the periphery that employ thousands, and there are several co-working spaces and accelerators spread throughout Israel, from Kiryat Shmona to Eilat, but it’s still not enough.

Where's the education?An additional plague related to Israel’s lack of employees also concerns our children’s education and higher education. Not enough high school students study STEM, especially young girls who prefer other subjects and are not encouraged to get into tech, and there’s a lack of advanced math students, those who may become the next entrepreneurs. In universities, not enough students finish their degrees in computer and programming related studies, and those that do aren’t prepared to work in a real tech company and face real challenges. Not to mention the college students who are all-too-often overlooked by employers who believe that they’re just not good enough.The solution? The opening of new programming bootcamps and companies educating their own employees or new employees to support the companies’ needs.

Miscommunication between academia and the industryAnother education-related issue is the failure to effectively transmit academic knowledge to the industry. Take for example personalized medicine, a field that could reduce costs, improve medicine, and mark Israel as the global leader in this field; unfortunately, Israel was not doing enough to connect between researchers and the industry to help them gather data.Same problem with agriculture. The research taking place in universities and institutions like Volcani Center is the basis of all of the knowledge in this field in Israel, however, the industry is not interested in agriculture, and is not investing in it because it might take years until they see results.

Starting a business in IsraelOur version of “plague of firstborn”. Surprise! It’s hard to start a business in Israel, it’s even harder to survive with the one that you have. It costs money to open a business, you have to go through annoying bureaucracy, you barely get support from the government when it comes to financial aid or normal taxation, and, well, good luck getting an investment. You see, with thousands of active startups and billions of dollars raised every year it’s hard to spot any problem, but it’s far from the truth. With no institutional investment in companies, or VCs that prefer to avoid regulations and pour their money on foreign companies, it’s getting hard to get by. The high living costs in Israel and the inability to keep your head above the water is making many entrepreneurs just give up. According to IVC, from 2012 to 2017, over 3,300 startups shut down, about 95% of Israeli companies, from bootstrap to IPO, eventually fail. The success stories and promises of the Startup Nation are all over the news, but the truth is, you just hear about the 5%.

Well, this article may sound pessimistic, like the end of the world (or at least the Israeli ecosystem), it may be true in the near or far future if we don’t solve these problems, but there’s still hope to hold on to. Most of these “plagues” are addressed and handled by the Israeli Innovation Authority, who are putting efforts on resolving them: encouraging diversion, encouraging investments and growth in the periphery and granting investments to new breakthrough startups.Besides the authority, many good people are initiating many good things: new startup bootcamps, programs to encourage women to code, programs to involve Arabs and Ultra-Orthodox in the industry, and hubs opened in different spots to enable entrepreneurship in these areas.The Israeli spirit doesn’t break that easily, and every failure teaches something new. The fact that we still have hundreds of investment and acquisitions every year, people opening new startups, and Israel is still ranked as one of the top tech ecosystems in the world despite the obstacles and “plagues”, is the proof that the Startup Nation is here to stay.